Interest expense will increase each period if a company uses the effective-interest method of amortization and the bonds are issued at a discount.

Question

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Under the effective-interest method of amortization, interest expense is calculated based on the effective interest rate of the bonds. When bonds are issued at a discount, the effective interest rate is higher than the stated interest rate, resulting in higher interest expense each period. Therefore, interest expense will increase each period if a company uses the effective-interest method of amortization and the bonds are issued at a discount.

Interest Expense Will Increase Each Period If a Company Uses